Saturday, May 30, 2009

Weekly Market Update (5/29/09)‏


The Commerce Department revised up its estimate of US real GDP growth for the first quarter of 2009 to an annual rate of -5.7% from the -6.1% decline reported previously. more...

US Treasuries sold off heavily at the beginning of the week, accelerated by over $100 billion of Treasury supply in 2-, 5- and 7-year notes this week. more...

Large-Cap Equities
The stock market rallied during this holiday shortened week despite fears of rising mortgage rates. Commodity prices continued to rise as crude oil prices spiked above $66 a barrel. more...

Corporate Bonds
Investment grade primary activity had another solid week with issuers racing to get deals done prior to month-end. more...

Mortgage-Backed Securities
Mortgages went on a wild rollercoaster ride as higher yields triggered a wave of piggyback selling by market participants. more...

Municipal Bonds
Are we witnessing a return to normalcy in the municipal bond market? Rising yields in the Treasury market cascaded across asset classes this week and municipal bond yields followed with a lag. more...

The high yield market momentum of April continued into May, though the magnitude of the upward moves has become more muted. more...

Western European Equities
Stocks in Western Europe gained ground over the past week. The sectors with the best performance were basic resources (+7.0%) and oil & gas (+4.3%). more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.3% this week, while the Russian stock index RTS went up +7.3%. more...

Global Bonds and Currencies
The European and UK government bond markets sold off during the first half of the week in sympathy with the sharp rise in US Treasury yields. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week as risk appetite remained strong and equity markets rallied. more...

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Have a great weekend!

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Friday, May 29, 2009

Trading & Investing Rules: A reminder

I thought it might be a good time to review some wise advice from some proven brilliant traders as introduced to us in Jack Schwagers great book, “Trading Wizards”:
Bruce Kovner
• Do not overtrade and use proper position size.
• The market usually leads because there are people who know more than you do.
• I assume that the price for a market on any given day is the correct price.
• Do not personalize the markets.
Michael Marcus
• Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
• Always use stops
• Always pick a point you will get out before you get in
• The best trades have three things going for them
o First – the fundamentals suggest that there is an imbalance of supply and demand
o Second – the chart must show that the market is moving in the direction that the fundamentals suggest
o Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
• Longevity is the key to success.
• In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
• Common patterns transcend individual market behavior
• Trading rules:
o Cut losses
o Ride winners
o Keep bets small
o Follow the rules without question
o Know when to break the rules
• Everybody gets what they want out of the market
That is about the best you can do…I think.

Harry Truman once said: “The only thing new in the world is the history we don’t know.” I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”

Breakeven on investing activities

On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase in the latest GDP report issued today by the Commerce department.

Factoring these new estimates the following are the Minimum Rates of Return required to Breakeven after Tax and Inflation

In the 35% Tax Bracket -- 3.915%
In the 25% Tax Bracket -- 3.625%
In the 15% Tax Bracket -- 3.335%

This means that if you have money invested and are earning less than 3.3% on it at present, you will be losing purchasing power and will be worse off in the near future.

Translation: you are not earning enough on your money to buy the same amount of goods and services (the things you use to live on)a year from now than it costs you today for those same items.

This is, of course, a moving target. The current economic climate in the USA (and worldwide) will be getting worse from your point of view. The things you need to buy, like gasoline and food, will become more expensive at the same time that governments worldwide will be trying as hard as they can to keep rates of return down as low as they can.

What to do: find someone who can show you where you can earn more than 5% on your money. It can be done. But not by investing with the Government. The Government investments are among the most risky to your purchasing power that you can make now.


Released on 5/29/2009 8:30:00 AM For Q1:09
Previous Consensus Consensus Range Actual
Real GDP - Q/Q change - SAAR -6.1 % -5.5 % -6.4 % to -5.1 % -5.7 %
GDP price index - Q/Q change - SAAR 2.9 % 2.9 % 2.8 % to 2.9 % 2.8 %

First quarter GDP was revised up moderately as the Commerce Department's first revision bumped up the quarter's growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.2 percent contraction. The revised estimate was worse than the consensus forecast for a 5.5 percent decrease. The upward revision was primarily due to less negative inventories and a smaller decline in exports.. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter.

On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent. The markets had expected an unrevised 2.9 percent increase. The headline PCE index was unrevised with a 1.0 percent decline while core PCE inflation also was unrevised with an annualized 1.5 percent increase.

Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.

Although GDP growth was not quite as good as markets expected, the shortfall was not that significant. Markets likely have put these numbers behind and are focusing on post-open numbers for the Chicago PMI and consumer sentiment index. The sentiment number may be what markets really care about today, given the importance of improved consumer sentiment for recovery to take hold any time soon.

Market Consensus Before Announcement
GDP for the first quarter initial estimate came in with a sharp 6.1 percent annualized drop and followed a 6.3 percent contraction the prior quarter. A key fact from the report was that the first quarter decrease was led by a $103.7 billion cutback in inventories. Real final sales of domestic product fell only 3.4 percent while real final sales to domestic purchasers declined 5.1 percent annualized (purchases by U.S. residents of goods and services wherever produced). Markets likely will be watching to see whether weakness remains in reduced inventory investment. The cutback in inventories is seen as helping set up stronger growth in coming quarters.

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Market Reflections 5/28/2009

A big 1.9 percent jump in the always volatile durable goods report was all that it took for funds to move into equities and commodities on the expectation of economic recovery and inflation. But other data in the session were not so hot. New home sales firmed but remain very weak, while jobless claims continue to point to another month of massive job losses.

Oil rose nearly $2 to end under $65, given a special boost by drawdowns in oil and gasoline stocks. Tight management of supply has helped the oil industry to keep prices high despite still weak demand. Money might not be moving to safety but gold keeps rising, up $10 to $960. The S&P rose 1.5 percent to 906.83, the dollar index firmed 0.2 percent to 80.50.

Thursday, May 28, 2009

Durable goods orders data for April

Durable goods orders data for April were just released and show an increase of 1.9%, which is better than the 0.5% increase that was expected by economists. Meanwhile, the previous data was revised downward to reflect a 2.1% decrease. Excluding transportation, durable goods orders for April climbed 0.8%, which is better than the 0.3% decline that was widely anticipated. Durable goods orders less transporation for March were revised downward to reflect a 2.7% decrease. Separately, initial jobless claims for the week ending May 22 totaled 623,000, which was slightly below the 628,000 initial claims that were expected. Claims for the prior week were revised upward to 636,000. Meanwhile, continuing claims notched another record high by coming in at 6.79 million, which exceeds the 6.75 million continuing claims that were generally expected. Continuing claims increased 110,000 week-over-week. Both new home sales for April and first quarter mortgage delinquencies are due at 10:00 AM ET.

Wednesday, May 27, 2009

Market Reflections 5/27/2009

Existing home sales showed solid strength in April, raising chances that the worst of the housing slump is behind us. But it wasn't enough to lift the stock market which gave back much of Tuesday's gains as the S&P 500 fell 1.9 percent to 893.

The likely bankruptcy of General Motors didn't help market, but the risk, and along with it massive new layoffs, really has never sparked a flight to safety. The dollar remains near lows at just above 80 on the dollar index. Gold also has seen little benefit, continuing to hold steady at $950.

Judging by gains in oil, now over $63, the economic outlook is strong. Money moved out of the safety of Treasuries where the yield on the 5-year note rose 10 basis points to 2.40 percent. The ever building supply of Treasuries is weighing on the market though today's 5-year note auction did go very well.

Existing home sales for April

Updated: 27-May-09 10:00 ET

Existing home sales for April came in at an annualized rate of 4.7 million, which is in-line with that which was widely expected. The April rate was up modestly from the rate of 4.6 million for the prior month.

In turn, existing home sales increased 2.9% month-over-month, which is better than the 2.0% monthly increase that was expected. Home sales had slipped 3.4% month-over-month in the previous reading.

Meanwhile the House Price Index for March decreased 1.1% month-over-month. It was expected to increase 0.2% month-over-month. Meanwhile, the House Price Index for February was revised lower to reflect a 0.2% monthly increase.

Home sales and prices have been pressured in recent months by rising unemployment, despite efforts to keep mortgage rates down and tax incentives attractive. However, the better-than-expected month-over-month increase in sales has induced some knee-jerk buying in the broader market.

U.S. Home Prices Continue to Contract Sharply: No Recovery in Sight?

The S&P/Case-Shiller 20-City Composite Index fell 18.7% y/y in March 2009 as record levels of inventories and foreclosures continued to drive down home prices. All 20 cities covered in the survey showed a year-on-year decrease in prices, with 9 of the 20 areas showing rates of decline of over 20% y/y. The m/m pace of decline in March was slower than in February for 9 cities (S&P)

As of March 2009, average home prices are at similar levels to what they were in Q2 2003. From the peak in mid-2006, the 10-City Composite is down 33.1% and the 20-City Composite is down 32.2% (S&P)


“Beauty in things exists in the mind which contemplates them.” David Hume

Market Reflections 5/26/2009

A second straight big surge in consumer confidence fed a big rally in the stock market where the S&P 500 rose 2.6 percent to 910. Two months of confidence gains, centered in future expectations, may point to a bottoming in the recession, but they don't point to strong recovery. General Electric offered its view, saying the global consumer is now conservative, a shift that will limit the pace of future economic growth. Still deep trouble in the housing sector will also limit the recovery. Case-Shiller data showed steady and severe rates of home-price contraction

Tuesday, May 26, 2009

Home Prices Continue Downward March

REAL ESTATE MAY 26, 2009, 10:01 A.M. ET

U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.

For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.

Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.

David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.

Sortable Chart: Home Prices, by Metro Area Developments: How to Invest in Foreclosures Econ Newsletter: Click here to sign up Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.

The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.

Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.

For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.

Write to Kerry E. Grace at and Kevin Kingsbury at